Apr 28, 2014

No two recessions are the same, but they tend to follow a similar pattern. Typically, an accelerating economy burns through existing spare capacity. This leads to inflationary pressure, which forces the Fed to act. As markets anticipate rate hikes, the yield curve inverts. Growth slows and, more often than not, the economy rolls over, taking the market with it.

The current economic rebound is the slowest of the post-war period. Growth is being held back by a modest housing recovery and weak business confidence. As a result, abundant spare capacity exists, which prolongs the length of the cycle.

Apr 14, 2014

I think the selloff is probably over. If you look at the economically sensitive stuff in the market, it's not really selling off. It's tech. It's bio-tech, [which makes up about 10 percent of the market]. The other 85 to 90 percent is in perfectly fine shape.

~ Jonathan Golub, chief U.S. market strategist at RBC Capital, as appeared on CNBC, April 14, 2014

Apr 13, 2014

Running out of steam is best seen via legendary investor John Templeton’s four-phase quote: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Upon reaching euphoria bull markets lack energy to propel them further. Bulls climb the legendary “Wall of Worry,” and when all worries wane to well-worn whitewashing, you’re out of steam.

Now other sectors fueled by speculative fever and cheap money — biotech, post-IPO social network companies and high-momentum stocks — are getting their comeuppance. But the broader stock market has a long way to go before it’s even in a decent correction.

Plenty of things can cause that, including weak first-quarter earnings, poor economic reports, and the fact that we’re entering two of the worst quarters for stocks in the four-year presidential election cycle.

But the main causes of a genuine bear market — impending recession or deflation, ultra-high stock price-to-earnings ratios or rapidly rising interest rates — are not on the horizon.

So unless you’ve borrowed to the hilt to buy Twitter or the biotech ETF, you should stay invested and not lose a minute’s sleep. As far as market shocks go, this looks like a mild tremor, not the big earthquake everybody fears.

Apr 12, 2014

Walter: Well, we spoke of being free to choose earlier; that’s of course the title of a famous book by Milton Friedman, an economist highly regarded by most free-market type people. I must say a word or two about Milton Friedman.

Q: Okay, shoot. Metaphorically; no sectarian violence allowed.

Walter: Murray Rothbard used to say that mainstream economists specialize in what they are bad in. If you look at Milton Friedman’s work, you can see that he’s very good on free trade, minimum wage, rent control, occupational licensure, and other topics…

Q: But he was a monetary interventionist.

Walter: Yes, he was a monetary interventionist – and that was his main thing, apart from educational vouchers, which are also a horrible idea. If someone says “monetarist,” who will most people come up with by association? Milton Friedman. He was just horrible on this; he favored fractional reserve banking, he favored the Fed, all sorts of government monetary and tax intervention, and he had the audacity to name his book Free to Choose. But when people were free to choose, what did they choose? Gold. He’s a disgrace!

Q: Don’t hold back, Walter – tell us what you really think.

Walter: [Chuckles] Well, I don’t mind disagreement. We have to have Krugmans and Keyneses – but the problem is that everyone thinks Friedman was a champion of free enterprise, and people will come to you, and me, and Doug, and tell us were wrong because “even Milton Friedman concedes…”

Q: It’s like the problem arising from Ronald Reagan using libertarian rhetoric to get elected, and then overseeing the biggest acceleration of growth in government ever seen until that time. That had typical results of too much regulation and government spending, and people think that the Reagan years showed that free enterprise doesn’t work. Just as people are taught that the Great Depression proves that “unbridled laissez-faire capitalism” doesn’t work – when, in fact, the Depression was the result of government intervention into the economy.

Apr 6, 2014

Basically, what we don't like is that, rightly or wrongly, the public view of the financial industry has really plummeted since the financial crisis. I think much of that is well-deserved but the problem with that is there's been very little differentiation between good actors and bad actors in the industry. And what I don't like - and what I tend to take personally - is being lumped in with people who had something to do with the financial crisis. Nobody ever heard of high-frequency trading, nobody ever cared about high-frequency trading before the financial crisis, and because the financial crisis happened to coincide with when people first heard of high-frequency trading, I think those things got conflated, even though they have nothing to do with each other whatsoever.

Apr 5, 2014

CNBC: [Michael] Lewis maintains that
high frequency traders are front running smaller investors in his words,
legal front running is how he puts it.

Cuban: Yeah, they are. I mean, there's no
question about it. You
know, they know if you go to the store every day to
get a snickers bar, well, if i run to the store first, get a little bit of
a discount and sell you your snickers bar, you know,
they're going to make a little bit of money. especially if they do
it millions of times. it's almost like taking advantage of
a regulation that's not quite right. it's what they do. and they've been
doing it for a long time. and it's reality. but i don't think
that's even the greatest risk of high frequency trading. that's just part
of the deal.

CNBC: What is the greatest risk then?

Cuban: The greatest risk is that, A)
there's no such thing as buck-free software. All this is
software-driven. It's actually even going to
processor driven. And
because of -- because there's no such thing as
bug-free software, when you have fat finger bugs, you don't know what's going to happen to the market.
So there are structural risks, trading risks, and I think that plus
the fact that when you have algorithms trying to
figure out routes and how to get ahead of
orders. It's not like
there's just one player jumping in front of all
these orders. you've got
all these different algorithm traders, it's not
about small investor or any investor giving up some amount of
money to somebody who jumped in front of them, the
risk is all these different high frequency traders playing a game with
their algorithms to get in front and make
that trade. Because we
don't know the in factorial all the ways they may
interact and the negative consequences that occur as a result, that introduces a market risk. That market risk has an
unquantifiable cost. We saw it in one instance with the
flash crash. We see it every day with little
mini-flash crashes. We've seen some -- it's gotten a little bit better with the circuit
breakers per stock, but we just don't know.
And that's even without the possibility of a malicious algorithm being intentionally introduced into the mix. There are
so many things that can go wrong as all the
different high frequency traders jockey to get in front of that order. That to me is the biggest
problem. I think as a
result you'll see people not staying with their
positions as long because they're not quite sure what's going
to happen with the market. When you see something
start to go bad in the market, they don't
trust the system to say, you know what, somebody will jump in there and pick up the trades. For
all they know the chair might be pulled out and the
whole market could fall even further. And then we have such
strong correlations between different markets and different types of equities and financial devices that
even though there are circuit breakers involved,
one trade down, limit down, might lead to something happening in another, might lead to something happening in another equity might
lead to something happening in a full market and
who knows how far down that can cascade. All those things introduce
risk. All those things take a lot of money to try to understand and combat. Because of that that's a
cost...

Apr 2, 2014

I believe there is a limit beyond which free speech cannot go, but it's a limit that's very seldom mentioned. It's the point where free speech begins to collide with the right to privacy. I don't think there are any other conditions to free speech. I've got a right to say and believe anything I please, but I haven't got a right to press it on anybody else. [...] Nobody's got a right to be a nuisance to his neighbors

There are libertarians who are indeed hedonists and devotees of alternative lifestyles, and that there are also libertarians who are firm adherents of “bourgeois” conventional or religious morality. There are libertarian libertines and there are libertarians who cleave firmly to the disciplines of natural or religious law. There are other libertarians who have no moral theory at all apart from the imperative of non-violation of rights. That is because libertarianism per se has no general or personal moral theory.

Libertarianism does not offer a way of life; it offers liberty, so that each person is free to adopt and act upon his own values and moral principles. Libertarians agree with Lord Acton that “liberty is the highest political end” – not necessarily the highest end on everyone’s personal scale of values.

Libertarianism is concerned with the use of violence in society. That is all. It is not anything else. It is not feminism. It is not egalitarianism (except in a functional sense: everyone equally lacks the authority to aggress against anyone else). It has nothing to say about aesthetics. It has nothing to say about religion or race or nationality or sexual orientation. It has nothing to do with left-wing campaigns against “white privilege,” unless that privilege is state-supplied. Let me repeat: the only “privilege” that matters to a libertarian qua libertarian is the kind that comes from the barrel of the state’s gun. Disagree with this statement if you like, but in that case you will have to substitute some word other than libertarian to describe your philosophy.

He writes the worst English that I have ever encountered. It reminds me of a string of wet sponges; it reminds me of tattered washing on the line; it reminds me of stale bean soup, of college yells, of dogs barking idiotically through endless nights. It is so bad that a sort of grandeur creeps into it. It drags itself out of the dark abysm of pish, and crawls insanely up the topmost pinnacle of posh. It is rumble and bumble. It is flap and doodle. It is balder and dash.